Liberal-Tory coalition sets out agenda, deficit top priority

At the beginning of Britain's first coalition government since the Second World War, Conservative Prime Minister David Cameron and his Liberal Democrat deputy have set out their agenda. Top on the list is reducing the UK's huge budget deficit.

REUTERS - Britain's first coalition government since 1945 unveiled its ministerial team on Wednesday and said it would speed up efforts to cut the country's budget deficit as it emerges from a deep recession.

New Prime Minister David Cameron's Conservatives struck a coalition deal with the

"What will come after the honeymoon period?"

third-placed Liberal Democrats that aims to overcome their ideological differences, but which critics say could lead to instability.

The coalition must cut a budget deficit running at more than 11 percent of GDP. It adopted Conservative plans to cut 6 billion pounds ($8.96 billion) of spending this financial year, earlier than the Liberal Democrats wanted.

"No government in modern times has ever been left with such a terrible economic inheritance," Cameron told a joint news conference with Liberal Democrat leader Nick Clegg. "We know there will be difficult decisions ahead."

Clegg, who is the new deputy prime minister, said the government would be "radical and reforming" when needed and a source of stability.

"At a time of such enormous difficulties, our country needed a strong and stable government," he said.

Clegg and Cameron - the press conference in full

The coalition's plans include:

- Introduction of a banking levy;

- Commission to investigate the possibility of separating retail and investment banking;

- Plans to give Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation;

- Raising non-business capital gains tax to bring it close to income tax levels;

- Cap on non-EU immigration.

The agreement, reached early on Wednesday five days after an inconclusive election, ended 13 years of rule by the centre-left Labour Party under Tony Blair and his successor Gordon Brown.

"There is going to be a significant acceleration in the reduction of the structural budget deficit," new finance minister George Osborne told reporters.

Markets welcomed the agreement, hopeful a government led by the centre-right Conservatives would take swift action to cut the country's debts. Gilt futures jumped and sterling enjoyed a strong performance overnight, losing some ground later to trade broadly steady against the dollar.

The Conservatives are traditionally seen as hawkish on defence, and stocks in the sector were up 2.35 percent on the FTSE 350 index.

Former Conservative deputy leader William Hague is the new foreign secretary and ex-finance minister Ken Clarke will run the justice department. Lib Dem Vince Cable, a former economist, is the new business secretary.

Cameron, a 43-year-old former public relations executive, took over as prime minister after Brown admitted defeat in efforts to broker a deal with the Lib Dems. He is Britain's youngest prime minister in almost 200 years.

The Conservatives are parliament's largest party after last week's election but fell 20 seats short of an outright majority. With the Lib Dems, they will have a majority of 76 seats.